SEC faults Hewlett-Packard for disclosure omission

JudithBurns

(Adds comments from H-P counsel in paragraph three and from SEC official in paragraph six.)

WASHINGTON (MarketWatch) -- Hewlett-Packard Co.
HPQ, -2.52%
erred by failing to disclose why one of its directors abruptly resigned in the middle of the company's controversial investigation of boardroom leaks, federal regulators announced Wednesday.

The U.S. Securities and Exchange Commission didn't fine H-P but issued a cease-and-desist order against the firm, which didn't admit to or deny the SEC's claims. The action stems from the 2006 resignation of H-P board member Thomas Perkins, which H-P announced without offering an explanation as required by federal law.

"H-P acted in what it believed to be a proper manner," H-P general counsel Michael Holston said in a statement. "However, we understand and accept the SEC's views and are pleased to put this investigation behind us."

According to the SEC, Perkins, a prominent Silicon Valley investor, objected to H-P's plan to seek the resignation of another director it deemed to have leaked information to reporters, touching off a "lengthy and heated" board meeting last May. In the end, Perkins himself resigned.

While U.S. public companies are required to disclose certain disagreements that prompt a director's resignation, the SEC said H-P failed to do so, reporting only that Perkins had stepped down.

The SEC said H-P erred because Perkins' departure was triggered by concerns about H-P's corporate governance and policies on handling sensitive information. When such a disagreement relates to a company's operations, policies or practices, it must be disclosed.

Marc Fagel, associate regional director in the SEC's San Francisco office, said H-P "messed up" by not telling investors the whole story behind Perkins's resignation, a decision the SEC said H-P made after consulting with its general counsel and outside legal counsel. Fagel said even though H-P wasn't fined, other firms should take the public rebuke as a warning.

"Read these facts very carefully," said Fagel.

H-P, which makes printers, computers and software, became embroiled in scandal last year when news of the boardroom battle emerged. The company came under fire when it was revealed that investigators it had hired to probe the source of media leaks obtained information such as personal phone records through a pretense known as "pretexting."

The scandal resulted in the resignation of H-P's former board chair, Patricia Dunn and board member George Keyworth, along with several executives at the Palo, Alto-based company.

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